Trading of virtual currencies needs to be tightly controlled and monitored as South Korea feels it will increase the risk of financial scams

Less than a month after China banned raising money through initial coin offering (ICO), its neighbour South Korea said it would also impose a ban on fundraising through all forms of virtual currencies, says a Reuters report.

The announcement was made on Friday by South Korea’s financial regulator Financial Services Commission (FSC).

“Raising funds through ICOs seem to be on the rise globally, and our assessment is that ICOs are increasing in South Korea as well,” the regulator said in a statement. The regulator added that trading of virtual currencies needs to be tightly controlled and monitored, as it feels it will increase the risk of financial scams.

The regulator also warned that strict penalties would be issued on financial institutions and any parties involved in issuing of ICOs.

Early this month, the cryptocurrency industry was hit by a shockwave when China declared ICO to be illegal and companies were required to halt of fundraising activities ‘immediately’. Soon after the announcement, the prices of Bitcoin and Ether tumbled for a short period but have since recovered.

An ICO is a funding mechanism that is based on issuance of tokens and raising money via a crowdsale (similar to prepaid revenues in the crowdfunding format). In the ICO, a company or foundation typically issues a token which represents a self-enforcing smart contract that has been programmed according to a whitepaper.

Almost $800 million of cryptocurrency was raised via ICOs in just eight weeks in July and August. Despite the ban in China and South Korea, and the demand for virtual currencies is increasing across the world.

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